EMA + RSI Momentum Trading Strategy

Learn to spot momentum stocks (example included) →

Author

Upsurge Club
December 26, 2023

Hey there 👋🏼

In today’s edition, we’ll learn about an effective trading strategy that combines 2 useful indicators to help us take advantage of the underlying trend & momentum in a stock.

Finding Trend & Momentum

A successful trade requires one or both of the following:

  • A defined underlying trend

  • Strong momentum (bullish or bearish)

We can use a combination of the following 2 indicators for an effective momentum strategy:

1) Exponential Moving Averages, for establishing the underlying trend of a stock

2) Relative Strength Index, to help us gauge its momentum ⏬

Using EMA + RSI Strategy

Here’s how you can predict the direction of a stock’s momentum according to the strategy ⏬

Long Trade:

A stock is said to be in a bullish momentum when:

1) Its prices are trading above the 21-period moving average in Monthly, Weekly, and Daily timeframes.

2) RSI is above 60 in Monthly, Weekly, and Daily timeframes.

> An entry is triggered if, in a daily time frame, the price gives a breakout at 60 RSI and forms a bullish chart pattern like a rectangle, double bottom, or a cup & handle pattern.

Short Trade:

A stock is said to be in a bearish momentum when:

1) Its prices are trading below the 21-period moving average in Monthly, Weekly, and Daily timeframes.

2) RSI is below 40 in Monthly, Weekly, and Daily timeframes.

> An entry is triggered if, in a daily time frame, the price gives a breakdown at 40 RSI and forms a bearish chart pattern like a double top or a head & shoulder pattern.

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Example - Bullish Trend in COALINDIA

You can see how prices are trading above the 21-period EMA and the RSI has crossed above 60, indicating a bullish trend in the monthly time frame ⬇️

The stock has fulfilled this criterion in the weekly time frame as well ⬇️

Lastly, we get a confirmation signal from the daily time frame chart. You can see that prices are trading above the 21-period EMA and forming a cup and handle pattern. The RSI is also above 60, triggering an entry ⬇️

Learn to use various indicators, chart patterns, & strategies for successful trades in Ms. Jyoti Budhia’s comprehensive Technical Analysis Course.

Use “STOCK10” for a 10% discount & get the course for just ₹359

Happy learning,
Upsurge.club

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